Understanding Booking Holdings

What it does

What Booking.com does is very easy to understand: to facilitate online travel reservations between travel service providers and travelers. The company was founded in the Netherlands in 1996 under the original name Bookings.nl. In 2000, Bookings.nl merged with Bookings Online to form Booking.com; which was subsequently acquired by Priceline Group five years later. The acquisition was so successful that the parent company Priceline Group changed its name to Booking Holdings in 2018.

Booking Holdings includes many well-known brands to travelers such as Booking.com, Priceline, Agoda, Rentalcars.com, Kayak and OpenTable. These different platforms enable online reservations for accommodation, flight tickets, rental cars, activities and restaurants. As of the end of 2022, Booking Holdings’ services are available in multiple languages to millions of travelers around the world, making the parent company one of the most powerful players in the travel industry.

Revenue streams and expenses

Let’s talk one thing that everybody understands: money. Booking Holdings (Booking) has three revenue streams: Agency, Merchant and Other revenues.

Agency revenues come from travel bookings in which the company connects travel service providers with travelers. Think of it as matchmaking. Travel service providers are responsible for processing payments as well as all the related costs. For the services provided, Booking earns a commission per every transaction for which it invoices the service provider after travel is completed.

Merchant revenues, on the other hand, are derived from transactions in which Booking does the matchmaking AND facilitates payments from travelers. In this model, because Booking offers more value than in the Agency model, it earns not only reservation commissions, but also other related fees.

Last but not least, Other revenues consist of 1/ revenue earned by OpenTable; 2/ advertising on all of its platforms and 3/ compensation for sending referrals to other online travel agencies.

On the other side of the equation, Booking has the following main, including but not limited to, expenses:

  • Marketing: In 2022, Booking spent almost $6 billion on its brands, search engine keyword purchases, affiliate programs and other performance advertising. This expense line item usually makes up around 1/3 of Booking’s revenue. Investors pay attention to Booking’s marketing expense because the more efficiently the company can generate traffic and business, the better the earnings will be.
  • Sales: Booking incurs different expenses for processing payments and making sure these payments go through smoothly. There are also costs related to call center, content translation among others. Sales makes up about 8% to 10% of Booking’s revenue.
  • Personel: salaries, payroll taxes, bonuses, other benefits and compensations make up around 15-20% of the total revenue
  • Administrative: recruiting, training, office expenses and other administrative costs amount to 5-6% of Booking’s revenue
  • Technology: back office software and keeping sites running reliably cost Booking about 3-4% of its annual turnover

Agency vs Merchant Model

Let’s talk about the two primary business models in the travel industry.

In the Agency model, as mentioned before, Booking acts as a matchmaking middleman between travelers and service providers without being involved in the payment. Revenue comes in the form of commission on a transaction basis. Booking only gets paid after generating actual business for its partners, ie. after guests booked, used and paid for services. To travel service partners, there are several advantages. First, they get to decide on their prices and inventory, maximizing revenue and profits. Second, there is no longer a risk of the agency (Booking) going bankrupt. Third, service providers have positive cash flow since they are paid by travelers first before having to pay Booking.

Nonetheless, there are a few downsides of this model to service providers. Being free to control inventory means that they are at risk of having unsold perishable inventory. Additionally, these providers have to absorb the costs of processing payments, including interchange, fraud protection, chargebacks and compliance. Travel merchants, especially those in the US, have higher interchange rates (2%+) than merchants from other high-frequency categories such as groceries or gas. In other words, US-based travel merchants lost at least 2% of its revenue per transaction when they process payments. It’s a real cost that any business owner will take into consideration.

In the Merchant model, the likes of Expedia and Booking Holdings buy inventory in bulk from supply partners, at a significant discount obviously, and sell it either a la carte or in a bundle with add-on services. To supply providers, the Merchant model solves the volume question and takes care of all the expenses related to payments. However, they don’t have control over inventory or prices and they have to suffer on the margin as Online Travel Agencies (OTAs) demand a meaningful discount for the value offered.

The model in which a travel service provider should engage with Booking, in my view, depends on the size of the provider and where it operates. If a provider is a small boutique hotel with 20 rooms, because the provider doesn’t have leverage over Booking, they would have to absorb a high commission rate in the Merchant model. Hence, the Agency model looks more attractive from the margin perspective. However, the provider will have to manage and sell inventory, as well as deal with all the payment-related issues.

If a provider is a well-known hotel chain with multiple properties and hundreds of rooms, the dynamic is different. In this case, the provider is more likely to engage the Merchant model: use its significant bargaining power to negotiate a lower commission while ensuring that every month, some inventory is already sold.

I want to touch on payments a little bit before we move forward. This issue may not be top-of-mind, but can have meaningful consequences to a business. First, if a merchant processes payments by itself, it has to invest in infrastructure so that popular payment methods are available and it is compliant with all regulations. This task is not always easy or cheap. Here is Booking on the topic:

We are processing more of our transactions on a merchant basis where we facilitate payments from travelers through the use of payment cards and other payment methods (such as PayPal, Alipay, Paytm, and WeChat Pay). While processing transactions on a merchant basis allows us to process transactions for properties that do not otherwise accept payment cards and to increase our ability to offer a variety of payment methods and flexible transaction terms to consumers, we incur additional payment processing costs (which are typically higher for foreign currency transactions) and other costs related to these transactions, such as costs related to fraudulent payments and transactions and fraud detection. As we expand our payments services to consumers and business partners, in addition to the revenues from these transactions, we may experience a significant increase in these costs, and our results of operations and profit margins could be materially adversely affected, in particular if we experience a significant increase in non-variable costs related to fraudulent payments and transactions.

…In addition, as our payment processing activities continue to develop, we expect to be subject to additional regulations, including financial services regulations, which we expect to result in increased compliance costs and complexities, including those associated with the implementation of new or advanced internal controls, including, by way of example, those arising from the E.U.’s Payment Services Directive 2 and similar legislation. The implementation of these processes may result in increased compliance costs and administrative burdens.

A property owner is unlikely to be as good at Booking in setting up a great payment system. Hence, it may help to reduce operational workload to just outsource this particular task to Booking. Second, interchange rates for US-based merchants are often north of 2% and have serious impact on the bottom line. A single boutique property owner can’t negotiate a more favorable term with the networks. In this case, the likes of Booking Holdings can offer value. Booking pays partners in the Merchant model in two ways: either through a virtual credit card or by bank transfer. With its market power, I think Booking Holdings can negotiate a better deal with the networks and help merchant partners lower the interchange costs. If merchants want to take payments through a bank transfer, Booking charges 1.1 – 1.9%, which is often lower than credit card interchange rates in the US. In Europe, where interchange rates are regulated and much lower than those in the US, this factor is not as relevant.

The difference in interchange rates, depending on where a property is located, is the perfect transition to the second factor determining which model a travel service provider should adopt. Here is what Booking wrote in one SEC filing:

For example, in the European Union and the United Kingdom, the Package Travel Directive and other local laws governing the sale of travel services (the “Package Directive”) sets out broad requirements such as local registration, certain mandatory financial guarantees, disclosure requirements, and other rules regulating the provision of single travel sales, travel packages, and linked travel arrangements. The Package Directive also creates additional liability for a provider of travel packages, which could be the OTC, for performance of the travel services within a packaged trip under certain circumstances. Some parts of our business are already subject to the broad scope of the Package Directive, and as our offerings continue to diversify and expand, we may become subject to additional requirements of the Package Directive. Compliance with this directive could be costly and complex or, as a result of these requirements, we could choose to limit offerings that would otherwise be beneficial for the business, any of which could adversely affect our business, results of operations, or ability to grow and compete. Any changes to the Package Directive, including any changes to the scope of the travel services covered, increased levels of consumer protections, or changes to the requirements of financial guarantees could be costly or complex to comply with and may also adversely affect our business, results of operations, or ability to grow and compete in the future.

Because of the regulatory overheads, Booking Holdings and its peers are not motivated to engage in the Merchant model as they may be elsewhere. Hence, merchants in the UK or Europe may not have this option available even if they want it.

How They Are Staying Competitive

Booking Holdings thrives when their flywheel works properly: having more travelers attracts more service providers while having more service providers is a real value-add to travelers. As long as Booking proves that it can help partners grow sustainably (ie. bring more business and value at a competitive commission), partners will come. The question becomes: how can Booking keep travelers making reservations on their platforms when there are so many alternatives out there?

The first step is mind share. Booking has to be the first name in travelers’ mind when they start the process of booking a trip. Showing up at the top of search result pages helps. Ads such as Super Bowl commercials also helps drive awareness. Both of these things require technical skills and investments. Because I think Booking Holdings is very good at SEO, judging from my experience searching for lodging, and can spend millions of dollars every year on marketing, it’s a real competitive advantage.

But the work doesn’t stop when travelers go to Booking’s sites. Travelers tend to look at other sources and see if they can get more value elsewhere. First-party providers are motivated to lower the price for the same booking on their website a bit just to avoid commission to OTAs. Therefore, Booking must first ensure parity in everything: photos, features, map location, pricing, booking protection and cancellation policies. In this area, I think Booking is brilliant in creating the Genius program. Genius is a marketing program in which participating partners get more visibility and business in exchange for, at least, an automatic 10% discount on their “least expensive and most popular room type or unit”. The more a traveler books with Booking, the more Genius benefits they have. It incentivizes travelers to do business with Booking while offering to providers access to these coveted frequent travelers. Consumers save money, partners generate more business and Booking is a happy middleman. Win-win-win.

Furthermore, it’s important that Booking becomes a one-stop shop for all things travel. A trip includes other components than just accommodation, including, you know, flights, car rentals and activities on a trip. Looking up several providers for each of the components takes time. Hence, it’s really valuable to travelers when Booking can let them reserve everything on one platform. To the best of my knowledge, AirBnb does not offer flight reservations. First-party websites like Marriott.com do offer vacation packages, but they only have the inventory that they own and reviews on those properties. With Booking, consumers have access to a wider selection and more extensive reviews.

On the connected trip, on our long-term vision is to make booking and experiencing travel easier, more personal and more enjoyable, while delivering better value to our traveler customers and supplier partners. We have expanded our offering into travel verticals other than accommodations with a focus on flights.

And in the future, we will work to link relevant travel components together to provide a more seamless and flexible booking and travel experience. We believe that as a result of this initiative and the improved consumer experience we will drive increases in customer engagement and loyalty to our platform over time. We have continued to make progress on further developing our flight offering on Booking.com, which is now available in over 50 countries.

This flight offering gives us the ability to help our consumers book another important component of their travel in one place on our platform and allows us to engage with potential customers who choose their flight options early in their travel discovery process. We continue to see that over 20% of all of our flight bookers globally are new to Booking.com. We will continue this important work to provide our customers the best possible trip experience we can offer.

Source: Booking CEO on Q4 FY2022 Earnings Call


Booking used to rely on the Agency model. They started to transition more to the Merchant model in 2017 and gained great strides. As of 2022, it made up 44% and 42% of Booking’s total gross volume and revenue respectively, up fro the mid-teens five years ago. Then they followed up with initiatives such as additional offerings (flights for instance) and payments. I think the management team has done the right things to grow their business and be competitive. The numbers don’t lie. Booking Holdings long trailed its rival Expedia in gross bookings (GB) before the pandemic, but since then, has recovered faster and better than Expedia. That translated into a bigger gap in revenue. While Expedia’s revenue hasn’t come back to pre-pandemic level, Booking’s already surpassed it in 2022. The current status, by no means, is a guarantee of future outcome. Booking must not be complacent, especially when a challenger like AirBnb is growing fast and furious, albeit at from a smaller base.

Booking vs Expedia vs AirBnb
Booking vs Expedia vs AirBnb

Weekly reading – 25th February 2022

What I wrote last week

Updates on PayPal


Update from Andy Jassy on return to office plans. Jassy’s memo hit the nail on its head on why companies want staff back into the office. Personally, I believe it’s difficult to maintain productivity, creativity and culture with remote working. It’s particularly harder on new members. In my job, the learning curve is high. It usually takes a person one year to get acclimated. We had a few interns who couldn’t catch on because they found it difficult to learn while working remotely. Recent interns fared better. That hardens my belief that for jobs like mine, it’s important to get folks to the office.

($) More Auto Payments Are Late, Exposing Cracks in Consumer Credit. Two things stood out from this article for me. The first is that it will be interesting to see how the economy will be when consumer debt hits new highs regularly while lenders already see rising delinquency rates. The other takeaway is how many consumers are careless with their personal finance. How would they put themselves into a position where they had to set up a GoFundMe page to make ends meet?

Amazon employees express dismay, anger about sudden return-to-office policy. Opponents of the new policy said that it was decided in an Anti-Amazon way. If they were implying that the decision was arbitrary and subjective, unlike the data-driven way that Amazon is supposedly known for, I’d say it is perhaps exactly how corporate decisions are made. I read a recent Amazon book by insiders who spent years at the company. They chronicled how Amazon came to make a decision on their notoriously obnoxious 2nd HQ selection. At first, it was all about data. Eventually, it was merely a decision made by somebody DESPITE all the data. Or Jeff Bezos just came up with two business ideas out of nowhere that were eventually proven worthless. And if that’s not enough, I’d like to remind everyone that work is not a democracy.

($) Walgreens CEO Bets on Doctors Over Drugstores in Search for Growth. ““I went deeply into a strategic analysis of what could be next” after taking the helm, said Ms. Brewer. “It was clear to me that, from a strategic standpoint, traditional retail plus the pharmacy business is a very mature business, and at some point we’re going to have to have another way to grow revenue.” 

Addigy releases its 2023 State of the Apple Device Management Industry Report for MSPs. I consider it a positive sign for Apple. Demand for Apple device management is there and big enough for Managed Service Providers to charge premium for. Apple launched Apple Business Essentials for the exact same reason. It will take time for the tech giant to scale this business and even report some metrics. But directionally, I think they are onto something

($) American Express Airport Lounges Cut Back on Free Plus Ones. Amex no longer allows its cardholders to bring guests into lounges for free. The company has a dilemma. If they are too cavalier with the guest policy, lounges will be crowded, devaluing what is supposed to be a premium experience. On the other hand, making it too expensive to bring children or spouses will anger some, if not many, members. Amex premium credit cards are not cheap. To justify the high annual fee, cardholders need to travel quite a bit every year. But how many can spend and travel a lot all by themselves? It’ll be interesting to see how the new policy will affect customer churn.

Other stuff I find interesting

Will ChatGPT supplant us as writers, thinkers?For 25 years I’ve begun my introductory psychology course by showing how our best artificial intelligence still can’t duplicate ordinary common sense. This year I was terrified that that part of the lecture would be obsolete because the examples I gave would be aced by GPT. But I needn’t have worried. When I asked ChatGPT, “If Mabel was alive at 9 a.m. and 5 p.m., was she alive at noon?” it responded, “It was not specified whether Mabel was alive at noon. She’s known to be alive at 9 and 5, but there’s no information provided about her being alive at noon.” So, it doesn’t grasp basic facts of the world — like people live for continuous stretches of time and once you’re dead you stay dead — because it has never come across a stretch of text that made that explicit. (To its credit, it did know that goldfish don’t wear underpants.)

AI-created images lose U.S. copyrights in test for new technology. Generative AI is all the rage these days. It’s hard to go on a day without hearing something related to AI. Futurists run wild with predictions. Tech giants race to introduce their own version of AI-powered tools. Google’s stock price even dropped because of a botched AI demo. As generative AI gains popularity and usage, the question of copyrights will be increasingly important. Hence, the action that the US Copyright Office took carries significant meaning in determining who owns what, in the world of AI.

A Rollout Like No Other. Henry Ford was very protective of his invention and needed convincing to allow new changes to Ford vehicles.

Earth’s innermost layer is a 644 kilometer wide ball of iron. “This newly detected center, which is probably a ball of metal 644 kilometers wide, and its outer shell would be formed of an iron-nickel alloy, with traces of other elements.”


Private labels totaled a record of $228.6 billion in sales in 2022

Durian, which is an unpopular fruit with Westerners, is expected to bring in $1 billion in export for Vietnam in 2023

Commercial gaming in the US reached $60.4 billion in 2022

Source: Elizabeth Spyers

Updates on PayPal

FY2022 highlights

  • Total Payment Volume (TPV): $1.36 trillion, up 9% YoY
  • Transactions: 22.3 billion, up 16% YoY
  • 435 million active accounts at the end of 2022, including 8.6 million net new active accounts and 35 million active merchants
  • Net revenue: $27.5 billion, up 8% YoY
  • Free Cash Flow: $5.1 billion, up 4% YoY. FCF margin of 19%
  • Braintree made up 30% of PayPal TPV in 2022, growing 40% YoY
  • BNPL totaled more than $20 billion in transaction volume since launch, growing 160% YoY in 2022
  • Venmo has 90 million active accounts, including 60 million monthly actives, and exceeded $100 million in monthly revenue

Uncertainty at the top

PayPal earnings took a backseat to the announcement that CEO Dan Schulman is retiring at the end of 2023. A seasoned leader with years in leadership positions at global companies like AT&T, Priceline.com, American Express and Virgin Mobile, Dan became the CEO of PayPal in 2014. Here are a few headlines of what he has achieved:

  • Taking the company public in 2015, concluding the separation from eBay
  • “Under his leadership, PayPal’s market cap growth has outpaced the S&P 500. Revenues increased from $9.2 billion in 2015 to $27.5 billion in 2022, with total active accounts more than doubling to over 430 million in 200 markets. Total payment volume grew 5X from $288 billion in 2015 to $1.36 trillion in 2022” (PayPal)
  • Ending a long running feud with card networks in 2016, opening up opportunities for PayPal
  • Acquiring multiple companies, notably Paidy, iZettle, Honey, Xoom and Happy Return

A lot of people have leveled criticisms at the CEO and his leadership, after PayPal’s stock price dropped by almost two-third in 2022. They speculated that he was being pushed out of his job politely, instead of retiring voluntarily. I don’t know what goes on in PayPal’s boardroom, so I cannot dispute such a claim completely. But personally, I think that Dan is going out on his terms. Here’s my reason.

First, the CEO recently bought PayPal stocks worth of $2 million, bringing his stock purchase to $3 million since 2022. That’s not a sign of someone who is shown the door. The purchase signals that the CEO believes in the brighter future for PayPal and that he doesn’t harbor ill will towards the Board. Second, it’s how the announcement on his retirement was made. When Disney wanted to dismiss Bob Chapek, they did it in the most ruthless manner. No touting his achievement. No time given between the announcement and the dismissal. And we haven’t heard the Executive team publicly thank Chapek for his work. In Dan’s case, the departure seems planned and more cordial. The company put out a press release to show him gratitude. And he is leaving at the end of the year, giving PayPal time to settle on a new leader.

Last but not least, it’s what the CEO said himself:

I felt there were two important considerations in terms of timing. First, I wanted to be sure that PayPal had positive momentum and was in a position to deliver a solid year of performance. So I can be sure I wasn’t leaving the company in a difficult position. And second, it was important to me that the Board have enough time to conduct a thorough search and have a reasonable transition period.

Of course, I will be flexible in my time frame in order to assure we seamlessly onboard the ideal next leader of PayPal, and I look forward to continuing to serve on the PayPal board. I’m eager to see the next CEO build on all we have accomplished in the last eight and half years and seize the immense potential ahead of us. In the meantime, I will remain fully focused on maintaining our momentum and executing on our plan.

I had two criteria for when that right timing was. I mean the first one was I wanted to be absolutely sure that PayPal was on solid footing with a bright future. And as we look at kind of the quarter we delivered in Q4, as we look at what’s happening in Q1 right now, which is coming in much stronger than we anticipated across a wide variety of fronts, we feel that 2023 is shaping up to be a strong year. And we think we have a real nice glide path as we go into ’24 as well. And so that kind of like leaving the company in a good place seemed to be a good time for that.

The man is 65 years of age and has worked a long career. It’s sensible for him to think about the next chapter in life. That, to me, makes a lot of sense and indicates this decision comes from Dan himself, not the Board.

With that being said, the upcoming departure of the sitting CEO & President paints uncertainty on PayPal’s outlook. The company has to look for a new CEO and since September 2022, it has been running without an official CFO, who is on a medical leave. In addition, the long-time Chief Product Officer, Mark Britto, is retiring as well. The uncertainty around these three key positions in a complex operation like PayPal is undoubtedly a major concern as it affects long-term planning and execution.

Cost-cutting is great, but is it a bit too late?

The management team has been beating the cost-cutting drums for a while. Back in Q2 FY2022, they set a target of $900 million and $1.3 billion in cost savings for FY2022 and FY2023 respectively. This month, they revealed further savings of $600 million in expenses, on top of the $1.3 billion target, which come from a layoff of 2,000 employees, a reduction in external vendor spend and a decrease in real estate footprint.

This commitment to efficiency is in stark contrast to how wasteful the company was before. Previously, growing the number of active accounts was all the rage. It was one of the key goals proudly set, yet subsequently abandoned by the management team. Now, it’s about cost management and using capital wisely in key initiatives such as PayPal Complete Payments, Passwordless, Venmo or enhanced checkout.

I mean, upgrading the product and service suite to stay competitive as well as growing the addressable market are great. However, I wonder if it’s already too late and if PayPal squandered a golden opportunity in the last two years. Why do I say that?

First of all, the competition is pervasive and fierce. Every market that PayPal competes in, there are established and well-funded competitors, from Apple Pay in checkout, Affirm in BNPL, to Square, Clover, Adyen and Stripe in payment processing. In some areas, PayPal is at technical disadvantage. For instance, Apple Pay has exclusive access to the NFC chip and native on Apple devices. In other areas, the iconic brand has to play catch up. The CEO admitted that Square has done a much better job monetizing Cash App debit card than PayPal has with its own cards. PayPal Complete Payments, an unbranded version of Braintree for SMBs and midsized businesses, enters a crowded field that features the likes of Square, FIS, Adyen or Payrix.

Even when they have to operate in highly competitive fields, PayPal would still have a chance to dominate and win. But there are instances where I call into question such a possibility. Cash App bought the tax filing division of Credit Karma to drive inflows. What has been the appropriate response from PayPal? Absolutely nothing. In addition, Square launched Tap To Pay on iPhone for its US sellers last September. Meanwhile, PayPal will only plan to launch its own version a full year later. Last but not least, PayPal has had trouble monetizing Venmo whereas Cash App is the key profit drive for Square.

We’re updating the debit card. We’re behind Cash App there. We really need to do better on the debit card. We are really looking fully at that rewards piece of it. Business profiles with Apple Tap to Pay, I think, to be meaningful. It’s in pilot. It’ll really start to ramp at the end of Q1 into Q2. So, a lot there. And we’re doing a lot of redesign on the app itself.

All that said, there’s a lot going on there, but we have a lot more work to do, as I mentioned, to turn potential into reality. I think there are a lot of green shoots, but they need to grow and I’m not as happy with our performance on Venmo as I would like to be. It’s obviously a key part of our portfolio growing nicely, but there’s more we can do with it.

Source: PayPal Fourth Quarter 2022 Analyst Call

By no means am I suggesting that PayPal is an easy business to run. On the contrary, it is a highly complex business, even from the outside looking in. All I am saying is that the strategic mishaps in 2021, the level of competition, the failure to get feature parity with competitors and the uncertainty at the top give myself, a shareholder, some major concerns over the outlook of the company. For good measure, because PayPal is highly dependent on discretionary spending, it’s anyone’s guess how the challenging macro-environment and persistent inflation would mean for FY2023 and beyond. In fact, even PayPal’s executives didn’t provide revenue outlook for FY2023. For all of these reasons, while PayPal is trading at a lower price than before Covid, I am still reluctant to increase my position on the company.

Updates on Uber

If there is one long-term (the keyword here is long-term) Covid beneficiary, that’s Uber. The company looks to be in a better shape than ever. Here is why

Bookings & revenue skyrocketed

At the end of 2018, Uber generated about $50 billion in bookings and $10.3 billion in revenue every four quarters. Fast forward to the end of 2022, they reached $115 billion in bookings and $32 billion in revenue. In other words, bookings more than doubled and revenue more than tripled between 2018 and 2022. That’s some serious growth. To put it in perspective, Lyft made $4.1 billion in revenue in 2022, only 14% higher than what they recorded in 2019 (earliest year Lyft reported results publicly). The stock plummeted after a disappointing earnings call and a weak guidance early this week. What a stunning different the last few years made! Before Dara took over, Uber took one PR thumping after another. Hashtag #DeleteUber trended on social media a few times. Lyft became a serious threat. Nowadays, the pink company is barely hanging on while Uber is stronger strategically than ever.

Uber's Rolling 4-Quarter Bookings & Revenue
Uber’s Rolling 4-Quarter Bookings & Revenue

Used to rely on Mobility, Uber now has two equal businesses

Everyone knew Uber as a ride-hailing company. Its whole business used to revolve around transporting folks from one place to another. In 2014, Uber Eats was launched, but it was tiny compared to the cash cow Mobility. Covid-19 changed everything. While Mobility took a dive as folks limited their movement to the outside world, Delivery rose and, as of December 2022, rivals Mobility in Bookings. Having Delivery is absolutely crucial to the company’s survival and growth for the following reasons:

  • Delivery brings more earning opportunities to drivers and as a consequence, Uber attracts more drivers and retains them better. In fact, Uber just posted monthly active drivers at all-time high. More drivers mean shorter waiting time and higher customer satisfaction.
  • A bigger driver pool also means that merchants see more deliveries out of the door and get to consumers faster. More merchants make the whole Uber ecosystem healthier and more robust.
  • I don’t wish to ever see another pandemic like Covid again, but nobody can dismiss that possibility completely. Having a business like Delivery reduces the overall risk exposure for Uber. Just ask Lyft about it.
Uber Mobility & Delivery Bookings
Uber Mobility & Delivery Bookings
Unlike Lyft, Uber can provide more earning opportunities throughout the day to drivers
Unlike Lyft, Uber can provide more earning opportunities throughout the day to drivers

Uber has not yet made money, but it’s getting there

One major criticism of Uber, mostly deservedly, is that the company has not delivered profits. Which business gets to $33 billion in annual revenue with zero profit? To be fair to Uber, the task is exceedingly difficult given the circumstances. Dara stepped into the CEO’s shoes with the mandate to restore Uber’s public image and bring adult leadership. Then, Covid happened, decimating the cash cow Mobility service. Then, he had to deal with the post-Covid consequences: driver supply & inflation. And let’s not forget about competition from the likes of DoorDash, GrubHub and Instacart. Navigating through all those challenges with a global operation is not easy.

Hence, it’s encouraging to see the transformation of Uber’s business and the stride it took towards profitability. For the past four quarters, on an adjusted EBITDA basis, both Delivery and Mobility were in the black. I understand the gripes (again deservedly so) that many have about EBITDA metrics, but the point lies in the intent and execution that Uber’s executive showed. Here is Nelson Chai, the CFO, on the topic:

Our call to action moment was actually in 2020. And if you recall back then, our Mobility business was over 85% of the company’s gross bookings. And as we sat here in April of 2020, that business was down 80%. So as you recall, we acted pretty decisively during that time, we took over $1 billion of costs out of our infrastructure. We shuttered down a bunch of businesses. And unfortunately, we did have to let go over 20% of our headcount.

So we’ve been really focused on efficiency since then. I think you’ve heard us lay out our plans, and I think Dara mentioned on CNBC, in 2021, we wanted to really push hard for EBITDA profitability, and again, we achieved that metric in 2021. Last year, we talked about being free cash flow positive at some point in the year. And again, we achieved that metric. And now, we’re talking about being GAAP operating profit at some point later in the year. And we expect to continue to achieve that metric.

Now we’ve done this — and you mentioned incremental margins, we’ve done this because we focused efficiently on cost, and we’ve been laser-focused on it. So our headcount will largely be relatively flat this year. And even if you go back to the build that the many companies had over the past few years, we’ve grown our headcount about 10%, excluding the Freight business, over the period of time. And our gross bookings went from $62 billion in 2019 to $115 billion last year. So just think about that growth and efficiency. Where we’ve hired heads has been in some areas of tax, selectively, as well as some sales folks on the Delivery business. 

Uber Mobility & Delivery Adjusted EBITDA
Uber Mobility & Delivery Adjusted EBITDA

Uber was one of the notable tech companies that haven’t announced a layoff. What the executive team told analysts and investors about EBITDA profitability and free cash flow in 2022, they delivered. Growth looks the exact opposite of rival Lyft. These instances have earned Uber’s management team some benefit of the doubt in their quest to reach unquestionable profitability.

Other updates

  • Advertising: As of December 2022, 35% of merchants have become advertisers on the platform. The ads business has annualized run rate of $500 million, only half way to the target of $1 billion by FY2024. Given the high margin of the ads business, Uber would love to scale it as much as they can. However, they will have to be mindful of the detrimental impact that high ads load can do to user experience.
  • The flagship subscription Uber One as of December 2022 had 12 million. The company reported that members spent 4.1 times more than non-members and were 15% more likely to stick around. This type of users with their concrete intent to purchase will be something that merchants covet.
  • Freight generated almost $7 billion in revenue and was profitable on adjusted EBITDA basis from Q1 to Q3 this year

In short, I believe Uber is in the strongest position than ever. It managed to not only survive the pandemic, but also took advantage of the unique opportunity offered. Talk about never letting a crisis go to waste! The company still has a long way to go towards its long term goals, but the foundational blocks are there. The opportunity is there. All it takes now is disciplined execution. To that end, the management team has demonstrated that they can.

Disclaimer: I own Uber in my personal portfolio.

Weekly reading – 11th February 2023

What I wrote last week

Apple had the first revenue decline since Q3 2019. Why I am not worried

Amazon is no longer on Day 1


‘iPhones are made in hell’: 3 months inside China’s iPhone city. As an Apple shareholder, I condone the working conditions at the company’s suppliers. With the bargaining power that Apple has, it can make a difference in this area, especially when the tech giant doesn’t seem to waste any opportunity to tout its efforts to improve everyone’s lives.

EV Startup Vinfast to Cut U.S. Jobs Amid Restructuring. VinFast delivered almost 1,000 cars to the US, only for them to be stopped there because of “software updates”. While cars haven’t hit the roads yet, VinFast is reportedly downsizing operations not only in Vietnam, but also in North America. I used to work for the conglomerate. I am not foreign to the way Vingroup does business and everything said in the article sounds awfully familiar

Elon Musk fires a top Twitter engineer over his declining view count. Firing employees on a whim, product management by tweets, low morale, lack of leadership. All the things that one can imagine of terrible management are on full display at Twitter owned by arguably one of the greatest business executives that we have seen. What power and wealth can do to a person.

Google employees criticize CEO Sundar Pichai for ‘rushed, botched’ announcement of GPT competitor Bard. The urge to launch an AI tool quickly is baffling to me. I mean, ChatGPT may be cool and offer some value, but it’s still not commercialized. What good does it go for Google to have a half-baked alternative out? Why didn’t they wait to have a working product? This is not a good look for Sundar and his leadership team. As a CEO, he made a mistake in hiring too many employees too quickly. Now, he botched this product launch. And there is a report out there that the company even got the layoff improperly. These make you wonder what kind of CEO Sundar is.

Disney CEO Bob Iger’s potential willingness to sell Hulu is a reversal in strategy. Given the important of bundles to Disney’s streaming business and the subsequent importance of Hulu to the bundles, I doubt that Disney will sell its stakes in Hulu. This interview is just Bob Iger trying to gain some bargaining power and changing the narrative. As much as I was not a fan of Bob Chapek, he is a smart guy (otherwise he wouldn’t be CEO of Disney) and if he and his team thought buying out Hulu was strategically sound, I don’t see how the rationale changed in only a few months between then and now.

Net profit per vehicle by car brand
Source: Visual Capitalist

Other stuff I find interesting

How New Ideas Arise. There are two takeaways from this article for me. The first is that ideas can come anytime from anywhere. How ideas come pretty much varies from one person to another. What works for one person may not work for others. Find what works for you. Second, the only commonality is that ideas are puzzles. The more pieces one has, the more likely one can put together the puzzles. Hence, your personal experience in life and what you read matter!

Visual design rules you can safely follow every time. Even when you are preparing for your term paper or a document to your boss, these tips can come in handy

A guide for Van Life in Japan. I found this post inspiring. As a long-time admirer of Japan, reading this blog makes me want to travel to and explore the country even more.

TikTok’s Secret ‘Heating’ Button Can Make Anyone Go Viral. “According to six current and former employees of TikTok and its parent company, ByteDance, and internal documents and communications reviewed by Forbes. These sources reveal that in addition to letting the algorithm decide what goes viral, staff at TikTok and ByteDance also secretly hand-pick specific videos and supercharge their distribution, using a practice known internally as “heating.” “The heating feature refers to boosting videos into the For You feed through operation intervention to achieve a certain number of video views,” an internal TikTok document titled MINT Heating Playbook explains. “The total video views of heated videos accounts for a large portion of the daily total video views, around 1-2%, which can have a significant impact on overall core metrics.”

Fragrant fungi rewards Himalayan foragers. “For a few weeks each autumn, fine-dining kitchens across Japan are rich with the aroma of the matsutake mushroom. Japan consumes more than 500 tons of the delicacy in that short window, despite prices of up to 70,000 yen a kilogram. Ninety percent of the mushrooms are flown in, and foragers in exporting countries can earn a significant premium over their ordinary incomes. One Himalayan kingdom has been reaping the benefits. Matsutake grow wild at an altitude of 2,900 to 3,100 meters. Like that other prized fungus, the truffle, these mushrooms are hard to cultivate artificially. So foraging begins with a climb up the mountain path.”


Average price of a new car reached $47,362 in January 2023

Total credit card debt to a record $930.6 billion at the end of 2022

On average, Americans eat more than 9 pounds of Mexican avocados a year

Amazon is no longer on Day 1?

Amazon is well-known for focusing on customer experience. Its founder, Jeff Bezos, famously said that the company must always be on Day 1 to keep itself hungry and creative. However, my recent disappointing experience with its services makes me wonder whether the company is no longer on Day-1 mode. Here is what happened to me

It’s usually more expensive than other sites

Amazon used to boast reasonable prices and unrivaled convenience. For a lot of product items, you could save a few cents at other retailers, but when combined with frictionless delivery that Prime offered, the competitive prices were tough to beat. Unfortunately, prices on Amazon nowadays in many cases are anything but competitive.

Merchants love to sell through Amazon because they bring unmatched traffic and additional revenue. However, the giant retailer also charges up to 19% of sales for the privilege of being on their online store, BEFORE any other fees. Sellers either have to eat the cost in exchange for more sales volume or raise prices to maintain their profit margin. As a result, we see merchants choose the latter option, making prices on Amazon so much higher than on other retailers. Here are a few examples:

Mochiko Sweet Rice Flour is 33% cheaper on H-Mart than on Amazon
Yamaroku Soy Sauce is twice as expensive on Amazon as it is on The Rice Factory
E-Fa Tapioca Pearls are 20% more expensive on Amazon than on Walmart

I assure you that I didn’t have to spend hours finding these examples. They are just a few among the items that my wife and I wanted, looked for and bought somewhere else to save money. It happened so often that we now consider Amazon the first check on item and the last resort. In other words, we looked for stuff on Amazon to get reviews and information before going to other sources for more competitive prices. If there is no better option, we head back to Amazon for consideration. I became a Prime member in 2017. For the first 3 years or so, shopping on Amazon was almost my automatic first choice. That’s how far my experience with the company has fallen.

The phenomenon is not exclusive to Amazon’s online store. They recently raised the minimum grocery order threshold from Amazon Fresh for free delivery to $150. That’s many times higher than the usual $35 threshold mandated by other retailers like Target or Walmart. The change was reportedly aimed at raising the profitability of Amazon Fresh. You must wonder how unprofitable it has been before and how much Amazon leadership really cares about customer experience.

Deliveries are late more often

I ordered a cat toy one week ago and today learned that the order was canceled because it was undeliverable. My wife order some hair clips during Christmas 2022. The item was never delivered. I contacted Amazon Customer Service and was assured that a replacement would arrive in 4-5 weeks. Today, I was informed that order was, too, undeliverable and had to be canceled. When I shared my experience with two of my colleagues, they concurred, saying that it recently took longer for their orders to arrive as well. I would understand if we were still restricted to stay at home like we were during Covid. But we are not. Hence, what reason could there possibly be? Why would delivery quality decline so badly? If prices are higher and convenience is not a guarantee, what could justify the Prime membership that customers pay to Amazon?

Search results are littered with ads

One of the biggest benefits that Amazon brings is the amazing range of products and merchants on its platform. Type any product you want and Amazon will return with possible selections, along with reviews from other buyers. However, search results on Amazon’s website are not as authentic as they once were. A formal complaint by a coalition of labor unions claimed that around one out of every four Amazon search results on Amazon are paid ads. An investigation by Washington Post found that in some cases, third-party sponsored products made up most, if not all, search results. Worse, ads on Amazon look indistinguishable from authentic listings. As a consequence, buyers are NOT presented with the best options based on prices, value and customer reviews. Instead, buyers see what hungry sellers want them to see and Amazon lets them because that high margin from advertising dollars is just too good to pass up.

Source: Washington Post

In short, as a long-time Prime member, I have been pretty disappointed with my recent experience with Amazon. As a shareholder, I am worried about the company’s future outlook. I know my wife, my two colleagues and I are only a sample of four. Our experience might be an outlier, but at the same time, I don’t know how it is for millions of other customers. Customer orientation and satisfaction were once the bedrock of Amazon’s competitive advantages. They leveraged the trust and loyalty of customers into great bargaining power in negotiations with vendors. Yet, I can’t help but feel that the tech/retail giant is losing its mojo. And for the first time since I came to the US, I consider not to renew my Prime annual membership and to take my business elsewhere.

Apple had the first revenue decline since Q3 2019. Here’s why I am not worried

Per Apple Newsroom:

Apple today announced financial results for its fiscal 2023 first quarter ended December 31, 2022. The Company posted quarterly revenue of $117.2 billion, down 5 percent year over year, and quarterly earnings per diluted share of $1.88.

On the earnings call, Tim Cook named three reasons for the revenue decline: unfavorable foreign exchange rates, supply chain issues in China caused by the Chinese government’s Covid policy and a challenging macroeconomic environment. On foreign exchange, Cook quantified the impact at 800 basis points or 8%. Had foreign exchange stayed constant, the company would have had a 3% revenue growth. Regarding supply chain constraints, Apple posted an update on 11/6/2022, warning investors that they would not have enough iPhone 14 to sell. As it turned out, even they underestimated the gravity of the situation since supply shortage lasted through most of the quarter. For good measure, inflation and war in Eastern Europe were, too, significant hindrances.

On the product revenue side, here is where Apple landed:

  • iPhone: $65.78 billion, down 8% YoY
  • iPad: $9.4 billion , up 30% YoY
  • Mac: $7.4 billion, down 29% YoY
  • Wearables: $13.48 billion, down 8% YoY
  • Services: $20.77 billion, up 6% YoY

While there is definitely value in tracking product revenue YoY growth, investors should not put too much stock in it. For two reasons. First, factors such as Covid and lockdown imposed by the Chinese government, affecting much of Apple’s supply chain, are beyond the company’s control. Of course, Apple must address this outsized risk for long-term sustainability, which I believe they already have started, but there are always unpredictable events. Second and more importantly, YoY growth is significantly influenced by Apple’s product release schedule. Take Mac as an example. Stay-at-home orders around the globe pulled forward a lot of demand. Additionally, the launch of Macs with redesigned M1 chips last year was an astounding success, making it a tough comparison this year. On the other end of the spectrum, iPad had a great quarter due to the new products and easy comparison which derived from supply constraints last year.

As a shareholder who has a sizeable share of portfolio in Apple, I am not worried about the company’s foreseeable outlook for the following reasons: customer loyalty & demand, Services and a competent management. During the call with analysts, Apple CFO Luca Maestri gave some color on how much Apple products appealed to consumers:

Importantly, the installed base of active iPhones continues to grow nicely and is at an all-time high across all geographic segments. In emerging markets, in particular, the installed base grew double digits, and we had record levels of switchers in India and in Mexico. Our customers continue to love their experience with our products with the latest survey of U.S. consumers from 451 Research indicating customer satisfaction of 98% for the iPhone 14 family.

At the same time, however, the installed base of active Macs reached an all-time high across all geographic segments, and we continue to see very strong upgraded activity to Apple silicon. Customer satisfaction with Mac remains very strong at 96% based on the latest survey of U.S. consumers from 451 Research.

The iPad installed base reached a new all-time high, thanks to incredible customer loyalty and a high number of new customers. In fact, over half of the customers who purchased iPads during the quarter were new to the product.

Our installed base of devices in the category (Wearables) set a new all-time record thanks to the largest number of customers new to our smartwatch that we’ve ever had in a given quarter. In fact, nearly 2/3 of customers purchasing an Apple Watch during the quarter were new to the product.

As you can see, Apple doesn’t have a demand problem. What they struggle with is to make sure that they have enough products to sell. It is a much better and easier problem to have than to generate demand. Today, China has relaxed its Covid policy, easing the supply chain bottleneck and giving Apple more products to put on the market. As mentioned before, Apple product releases seriously impact growth numbers and it’s anybody’s guess what products and WHEN the company will announce. Nonetheless, as long as devices fly off the shelves, Apple should be in good shape.

In addition to Products, I am bullish on the Services side of the house. Since 2018, Services revenue grew by 18% every year, reaching $20.77 billion in Q1 FY2023. To put it in perspective, in the last four quarters, Services generated close to $80 billion in income, dwarfing that of some of the iconic US giants like Starbucks, Nike or Boeing.

Apple attributed this growth to its ever growing subscription base and called it “the engine” of Services. As of Q1 FY2023, Apple had 935 paid subscriptions, growing it at 31% every year since 2018. With 2 billion active devices at the moment, that Apple had 935 million paid subscriptions implies there are a lot more subscriptions to acquire. Meanwhile, most existing subscribers should be happy to stick around. Can you imagine having 100 GB of photos and materials and suddenly stop iCloud next month? Furthermore, there are developing avenues for growth such as advertising, financial services or Apple Business Essentials. Because of these reasons, I am confident that Services will continue to grow nicely for Apple, at least in the next 3-5 years.

One last, but definitely not least, reason why I am bullish on Apple is its competent management. While other tech peers such as Microsoft, Meta, Amazon and Google got carried away by the growth during Covid and subsequently fired thousands of employees to cut costs, Apple was disciplined in its hiring and growth initiatives. Such a more measured approach led to Apple being the outlier in tech layoffs and maintaining healthy financial profiles. Despite unfavorable foreign exchange, supply constraints and inflation, Apple’s gross margin stayed relatively intact. Margin for Product, Services and the whole company was down by 1% compared to last year but up 2-3% compared to 2021. That’s not a mean feat. It implies considerable bargaining power against suppliers, thoughtful planning and great execution. And if you care about how a company is run, it’s exactly the kind of signal that you should look for.

Obviously, Apple’s management and investors would prefer a revenue beat to a revenue miss. But investing and characteristics of a company are more nuanced than just revenue figures. That’s exactly the case here. The strength of Apple’s product lineup & Services as well as the competent leadership at the helm make the attention-grabbing headlines from news outlets much less concerning.

X1+, A Credit Card For When Things Go Wrong On Travel

There is a new credit card on the market for when things go wrong on travel.

X1 introduced a new iteration of its credit card portfolio, the X1+ card. Here are a few headline attributes:

$75 annual fee card.

Worldwide Lounge Access for Flight Delays: X1+ will be the first U.S. Visa credit card to offer complimentary lounge passes worldwide for members and up to 4 additional passengers if a flight is delayed by one hour or more.

On-Demand Lounge Access: X1+ will be the only credit card to enable on-demand lounge pass purchases, so cardholders can access more than 1,000 Priority Lounges.

Smart Baggage Protection and Enhanced Coverage: If baggage is delayed, cardholders get $100 per day in protection for 3 days. If baggage is lost, cardholders get $3,000 in protection per trip. Trip cancellation coverage is up to $5,000 per person per trip, and the card acts as the primary insurance for domestic and international car rentals. The card also comes with enhanced purchase protection at $10,000/occurrence, including Porch Piracy, with a limit of $50,000 per cardholder.


  • 2X points on every purchase regardless of category
  • 3X points every time you spend $1,000 in a month
  • 4X points on Expedia, Hotels.com and VRBO
  • 4X, 5X and even 10X points for every referral who gets a card
  • Up to 10X points at leading online stores such as Apple, Nike and Sephora when cardholders shop in the X1 App

Let’s analyze these benefits and see if it’s worth paying $75 a year.

2x points on every purchase is similar to set-and-forget cash back credit cards with no annual fee on the market. Examples include PayPal Mastercard Credit Card, Apple Card on Apple Pay, Synchrony Premier World Mastercard, FNBO Evergreen and Wells Fargo Active Cash Card. Because these cards don’t require any annual fee, the 2x cash back on every purchase becomes table stakes, not what consumers should pay $75 a year for. Additionally, some of the aforementioned cards such as FNBO Evergreen or Active Cash Card also has an intro and a bonus offer. To compete, X1+ must bring something else to the table.

3X points every time a customer spends $1,000 a month is an intriguing benefit. The fine print on rewards terms stipulates that the higher rewards earn rate only applies for spend between $1,001 and $7,500 in a calendar month. Any dollar beyond the $7,500 mark will earn 2 points. Here is a concrete example. If you spend $1,000 within the first month of Jan 2023, you’ll earn 2x points on that amount. Between the 6th and 25th of January, you spend another $6,500 which will accrue 3x points. For the last 6 days of the month, you spend another $500 which earns 2x, instead of 3x, points.

Based on those terms, if a customer wants the extra 1 point per dollar to pay for the annual fee, they will have to spend at least $750 a month for 10 months. The math is that $750 (the amount after the first $1,000) x 1 (the additional rewards earn rate) x 0.01 (100 points are worth $1) x 10 (number of months) = $75. Let’s say that a customer narrows down his or her next credit card to one between X1+ and one 2% cash back with a $200 bonus and no annual fee. Choosing X1+ would mean potentially losing $275. How can they make that up with the extra point from X1+? By spending at least $3,750 a month. In that case, after 10 months, they will recoup that investment ($2,750 x 1 x 0.01 x 10 = $275).

As a result, consumers who plan to spend between $1,750 and $3,750 on a credit card for the better part of a year will find the 3x points benefit of X1+ worth paying $75 in annual fee for.

Reading the press release, I suspect that access to lounges is the leading selling point of this credit card. Although the press release doesn’t mention which lounges X1+ cardholders may have access to, NerdWallet reports that it’s none other than Priority Pass Lounges. Here are a couple of things about these lounges:

  • If you reside in the US, it costs $99 a year to join the Priority Pass community and a further $35 for each visit to a lounge. Pay $329 a year and you can get 10 complimentary lounge visits. $469 a year will get you unlimited free lounge visits
  • Priority Pass Lounges are located at major airports in the US and numerous locations in the world
Priority Pass Lounge Map. Source: loveswah
Priority Pass Fees. Source: Priority Pass

Based on how Priority Pass Lounge access is priced, a couple of visits are already worth the annual fee, especially if you don’t fancy joining the Priority Pass network every year. The catch here is that complimentary access only comes when your flight delay lasts more than an hour. In other words, you have to rely on things going wrong to enjoy this benefit. According to the Bureau of Transportation, 20% of the domestic flights in US between January and October 2022 had at least a 15-minute delay. Once data for the holiday comes in, I suspect the share of delayed flights will increase due to unprecedented delays and cancellations that airlines had to make. It’s safe to assume that a consumer has like 5-10% of having a flight delayed for more than an hour.

As a result, X1+ cardholders that don’t travel frequently may not have a chance to use this benefit that the card offers. But compared to the high annual fee that other premium travel credit card like Amex Platinum command, it’s a reasonable trade-off: a low annual fee with no guaranteed lounge access for a high annual fee with guaranteed access. X1+ is clearly positioned as an alternative for the premium credit cards already on the market.

Other benefits such as baggage delay or trip cancellation insurance is at best another table stakes and not differentiated from competition. Plus, these benefits only kick in when customer trips hit speed bumps, reducing their appeal to customers who likely prefer smooth travel.

In short, X1+ has some pretty unique selling points such as access to lounges or 3x rewards. The card, in my opinion, appeals most to high-spending folks that can spend at least $1,750/month for most of a calendar year. Another group that may find this card attractive is frequent travelers that want peace of mind yelt balk at paying a high annual fee upfront. If X1 manages to add more names to the list of 4x rewards merchants, the card will become more attractive. I suspect that the 4x merchants subsidize rewards expenses in exchange for additional sales. Once X1+ grows to a certain point, it will be easier to sign up more vendors.

Banks plan to compete with Apple Pay & PayPal

Per WSJ:

Wells Fargo, Bank of America, JPMorgan Chase and four other banks are working on a new product that will allow shoppers to pay at merchants’ online checkout with a wallet that will be linked to their debit and credit cards. The digital wallet will be managed by Early Warning Services LLC, the bank-owned company that operates money-transfer service Zelle. The wallet, which doesn’t have a name yet, will operate separately from Zelle, EWS said.

EWS’s owner banks are also trying to cut down on fraud. Customers using their wallet wouldn’t have to type in their card numbers, which can raise the risk of fraud and rejected payments that result in lost sales. 

The banks are still ironing out the details of the customer experience. It likely will involve consumers’ typing their email on a merchant’s checkout page. The merchant would ping EWS, which would use its back-end connections to banks to identify which of the consumer’s cards can be loaded onto the wallet. Consumers would then choose which card to use or could opt out. 

Banks are reacting to the threats from PayPal and especially Apple. The tech giant is moving deeper and deeper into the consumer banking space with the imminent launch of a savings account and BNPL product. Incumbent banks are concerned that Apple will control the customer relationship, rendering banks’ offerings a stepping stone or accessories at best. In “Owning the relationship with your customers. A look at the controversial case of Apple“, I wrote:

Apple is at the peak of their power and having the best relationship ever with users, a relationship that involves other parties such as app developers. The company invests a lot of resources into cultivating the relationship with both end users and app developers. As long as the former is strong (apparently it is now given its strong financial results), it gives Apple enormous bargaining power over anyone who wants to leverage such a relationship. To reduce Apple’s power, the most logical way is to weaken the bond they have with the end users by offering a better alternative, though it’s by no means an easy ask.

There is virtually nothing that these banks can do to stop consumers from buying Apple hardware. Manufacturing a smartphone is not in their circle of competence. As a result, the only way to weaken the bond that Apple forges with consumers is to offer an alternative to Apple Pay. Do that and banks can hope to wrestle back the control over customer relationship. While the plan makes sense, there are major concerns over its practicality.

The first issue is fraud. EWS operates the P2P network Zelle, which enables money exchange between users’ bank accounts. Though popular, Zelle has seen a concerning amount of fraud which attracted criticisms from lawmakers such as Elizabeth Warren. I was personally told that my employer, a bank, hesitated to offer Zelle mainly because of fraud. If EWS cannot solve fraud on Zelle and there is little information on how the new unnamed mobile wallet will minimize fraud, what is to make us believe that will actually happen?

The advantage that Apple has in this area is that their hardware is built as a fraud deterrent. Any Apple Pay transaction needs to be approved either with a Touch or Face ID. And we can bet that Apple won’t make a competitor a native wallet on their devices like Apple Pay.

An argument can be made that since the new wallet challenger will operate like PayPal, which is a massive brand, surely it can replicate PayPal’s success. Well, that’s where the second issue lies. PayPal has a giant network of 380 million consumer and 35 million merchant accounts. Merchants like PayPal because it can help with conversion, while consumers like PayPal because it is widely accepted. One cannot live without the other. How can big banks convince thousands, if not millions, of merchants to display the new checkout button?

To do that, banks first have to convince consumers to use the new shiny wallet. Starting with credit cards is smart since that’s where rewards are. But what about trust? If consumers are unfamiliar with the new wallet’s name, whatever it may be, will they choose it instead of the more established names like PayPal or Apple Pay? Would you choose to pay with “Minh’s Pay” if I had a wallet after my name? That in and of itself is not an easy task.

JPMorgan launched Chase Pay in November 2016, about two years after Apple launched Apple Pay. It’s beyond dispute to say that Apple Pay is a much more successful and popular mobile wallet than Chase Pay. Remember that JPMorgan Chase is one of, if not, the biggest bank in the US. Even they couldn’t get its own proprietary wallet to compete with Apple Pay or PayPal. What are the odds that several banks whose interests may not always align can get the job done when they are several years behind?

Layoffs, Accountability & Leadership

What is the most important trait of a leader? While being a great leader requires a lot of qualities, the most important is accountability. I firmly believe that a leader should be the last to reap rewards in the good times and the first to sacrifice in a crisis; which is why I am disappointed with how the recent layoffs went down.

188,386. That’s how many people lost their jobs and had their lives severely impacted between 6/1/2022 and 1/20/2023. Regardless of size and industry, company after company announced their plan to shrink workforce. Even the best of them such as Google, Amazon or Microsoft had to take the drastic measure. The message is crystal clear: cut expenses now and gear up for a brutal environment that is expected to get worse in the coming months.

The current bleak outlook is mind-blowingly in contrast with what happened just a year ago. After the WHO declared Covid a global pandemic, folks expected an economic recession. Markets nosedived in March 2020. People were forced to stay at home. Businesses and personal life disrupted. But there was no recession. Instead, the once-in-a-lifetime pandemic pulled forward years of growth for companies and industries. Stocks repeatedly hit record highs. CEOs were optimistic about the future and thought that the favorable market conditions were here to stay. As a result, companies went on a hiring spree to accommodate the growth prospects.

Until the harsh reality set in. Over the past year, the war in Ukraine, the persistent supply chain issues, the change in consumer behavior, high inflation and rate hikes by the Fed created a volatile and hostile environment for businesses. Suddenly, everything didn’t look as rosy as expected. Growth was hard to come by. The stock market contracted. Companies were left with a bloating operating expense due to over-hiring and hyped optimism. To evolve, they needed to get leaner and more efficient. Hence, tens of thousands of good people lost their livelihood.

To be clear, I don’t blame CEOs for optimistically anticipating a growth run and hiring accordingly. As top executives, they must do what is right for stakeholders. If there were actually an opportunity to grow and they didn’t act to take advantage of it, they wouldn’t do their job properly. I give them the benefit of the doubt that they made the best decision with the information they had at the time. Business is always risky and this time, the dice just didn’t fall the right away for a lot of CEOs.

With that being said, I was a little bit disappointed when I read some of the memos that were shared publicly. I applauded CEOs that were candid enough to say that they were responsible for the decisions that led to the layoffs. Below are a few examples:

On 1/20/2023, Google announced that they were cutting 12,000 jobs:

I have some difficult news to share. We’ve decided to reduce our workforce by approximately 12,000 roles. We’ve already sent a separate email to employees in the US who are affected. In other countries, this process will take longer due to local laws and practices.

This will mean saying goodbye to some incredibly talented people we worked hard to hire and have loved working with. I’m deeply sorry for that. The fact that these changes will impact the lives of Googlers weighs heavily on me, and I take full responsibility for the decisions that led us here.

On 1/4/2023, Salesforce said in a filing that they were going to reduce about 8,000 jobs, or 10% of their workforce:

However, the environment remains challenging and our customers are taking a more measured approach to their purchasing decisions. With this in mind, we’ve made the very difficult decision to reduce our workforce by about 10 percent, mostly over the coming weeks.

I’ve been thinking a lot about how we came to this moment. As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that.

Last November, Facebook decided to shrink their workforce by letting go 11,000 employees

Today I’m sharing some of the most difficult changes we’ve made in Meta’s history. I’ve decided to reduce the size of our team by about 13% and let more than 11,000 of our talented employees go. We are also taking a number of additional steps to become a leaner and more efficient company by cutting discretionary spending and extending our hiring freeze through Q1.

I want to take accountability for these decisions and for how we got here. I know this is tough for everyone, and I’m especially sorry to those impacted.

In November 2022, DoorDash cut 1,250 jobs:

As with all things, I want to start and discuss the factors in our control that led to today’s announcement and take accountability for this decision. Prior to COVID-19, DoorDash was actually undersized as a company. The pandemic presented sudden and unprecedented opportunities to serve the evolving needs of merchants, consumers and Dashers. We sped up our hiring to catch up with our growth and started many new businesses in response to feedback from our audiences. 

Most of our investments are paying off, and while we’ve always been disciplined in how we have managed our business and operational metrics, we were not as rigorous as we should have been in managing our team growth. That’s on me. As a result, operating expenses grew quickly.

Stripe shrank its team by 14%

Today we’re announcing the hardest change we have had to make at Stripe to date. We’re reducing the size of our team by around 14% and saying goodbye to many talented Stripes in the process. If you are among those impacted, you will receive a notification email within the next 15 minutes. For those of you leaving: we’re very sorry to be taking this step and John and I are fully responsible for the decisions leading up to it.

It’s admirable for a leader to own up to their mistakes and admit that they were wrong. Not every leader does that. Nonetheless, in addition to the nice words, I was expecting a concrete course of action as a token of accountability and a show of togetherness. Yet, I haven’t read a single memo that mentioned a CEO’s pay cut or relinquishment of stock grants, let alone a resignation. It’s unlikely that a CEO forgoing a portion of stock grants or a year of salary will make as big an impact on a company’s financials as laying off hundreds of employees. But the sacrifice will signal to every employee that they have leaders that share their pain and sacrifice.

If that is not good enough as a reason, think about it this way: those employees that were dismissed were unlikely to have much influence on the decisions that led to the layoffs. They just did their job and followed orders. Yet, they were the first to go while the decision makers still stay. What message does that say about a company’s leadership? In the good times, Sundar Pichai, CEO of Alphabet, made $280 million in compensation in 2019, most of which came from stock awards. His base salary in 2022 dropped to $5 million. But at least he is still one of the most powerful CEOs in the world, doesn’t have to worry about making ends meet or immigration status. And his stock grants will vest again in a few years. I cannot say none of that about some of the folks that lost their jobs.

It’s not like what I argued above didn’t happen in reality. Two weeks ago, Tim Cook, CEO of Apple, requested and received a 40% pay cut. While Apple hasn’t announced any layoff yet, mainly because it is more disciplined in hiring than others, the company is not immune to the challenging environment. If they followed others in cutting jobs to please investors and chalk up their financials, nobody would blame them. Yet, the CEO voluntarily asked to have his salary reduced. That’s great leadership.

After the first two heavy losses of the season, Manchester United Manager Erik Ten Hag ordered his players to the training ground on what was supposed to be their day off. He made them run more than 13 miles as punishment for the lack of effort in said heavy defeats. What stunned everyone was that the 52-year-old boss participated in the run. He wanted the players to know that he was responsible for the disappointing results too. That act earned Ten Hag a lot of respect from his players. The team is currently in the top 4 and will likely qualify for Champions League next season. A prospect that few predicted a few months ago. The togetherness and leadership that Ten Hag showed set the foundation for the team’s current results.

We learn a lot about companies and people in good times. But we learn even more in the time of crisis. I definitely have learned a few things from the past 3 years, especially the recent months.